It seems beyond question that it is all Quinn Insurance’s fault that we are all facing hikes of 25 per cent or more in our car insurance.
The accepted narrative is pretty simple. It goes as follows. Quinn Insurance headed by Seán Quinn entered the Irish market in the 1990s and started to aggressively drive down prices. The other players in the market all expressed their bafflement at how Quinn could write insurance profitably at such prices, but that did not stop them cutting premiums in response.
When the global economy crashed in 2007 it became apparent that in fact Quinn and all the other players actually couldn’t write insurance profitably at those prices. It took a few years for the whole thing to wash out but eventually Quinn collapsed and the other insurance companies – mostly the Irish arms of international players with deep pockets – took their losses but struggled on.
But the good news is that the grown-ups are back in charge. The bad news is that we have to pay more realistic rates for insurance.
There is something rather familiar about this particular morality tale. It has more than one echo of the “we all partied” explanation for the banking collapse.
As an explanation it may be from the heads-we-win-tails -you-lose school of finance, but the Government seems to have accepted it.
Unprofitable pursuit?
A briefing document prepared last September for Minister for Transport Paschal Donohoe – obtained by Mark Hilliard of this paper under the Freedom of Information Act – makes the following observation: "It appears motor insurers are now imposing higher premium rates to return themselves to profitability or to boost profitability after a number of years of insurers competing for market share with prices driven down accordingly and possible underwriting losses in some cases." But the anonymous civil servant who penned the document goes on to add an intriguing caveat: "The question does arise for motor insurers – if motor insurance is so unprofitable, why does anybody do it?"
The question is left hanging but it speaks volumes. It is clear that at least some in Government suspect the industry might be a little economical with the truth.
Their suspicion is understandable. The multiyear nature of insurance – claims can be made and paid years after premiums are received – means profitability in any one year is really a matter of informed guesswork.
Not only that, the industry in Ireland is particularly opaque as only one player has to publish its accounts. But the truth is that even if you got hold of the others' accounts you would not make head nor tail of them.
The insurers are regulated by the Central Bank – which presumably understands their figures – but it is only concerned with financial stability and not with consumer issues. Its record as a insurance regulator is patchy in any case. Its supervision of Quinn Insurance was a litany of failure until it stepped in decisively in 2012 and took the company over. More recently, it came in for criticism over the collapse of Setanta Insurance.
If there was a suggestion the insurance companies were acting uncompetitively to push up prices it would fall to the Competition and Consumer Protection Commission to investigate. But it has shown little appetite to date for looking into the lack of competition in the financial services sector after the crash, never mind insurance.
So the consumer is left to take the word of the industry these price hikes are unavoidable. And frankly, that is not really very smart. The note writer in the Department of Transport also picked biggish holes in the other arguments put forward by insurance companies for price hikes.
Competing stories
The document notes the insurance companies claim the increase in the number of claims ending up in court, coupled with higher costs and bigger awards, is also driving up premiums.
The writer then goes on to note rather dryly the Injuries Board – the State agency that settles claims – “paints a somewhat different picture”. It quotes CSO statistics to the effect the number of claims going to court was declining and the number of claims rising only modestly.
If the insurance industry is prepared to play fast and loose about these easily verified numbers, why should it expect us to believe when it comes to its substantive explanation for price hikes?